CSSF FAQ Virtual Assets – Undertakings for collective investment (updated on 06.04.2023)

On 6 April 2023, the CSSF updated its FAQ Virtual Assets – Undertakings for collective investment.
The FAQ, initially published on 29 November 2021, aims to provide professionals with concise answers to the main practical issues they are facing in the field of virtual assets. The present update brings modification to question 2, together with a new question 3A, which we would like to present in full, quote:
> Q2. May an AIF invest in virtual assets?
Updated on: 06/04/2023
Investments in virtual assets as defined in the AML/CTF Law could be compatible with funds aimed at the professional investor, as opposed to those aimed at the retail investor, on condition that the investment by the fund in virtual assets does not prevent the application of and compliance with existing regulatory requirements. In consequence, an AIF may invest directly (and indirectly) in virtual assets under the condition that its units are marketed only to professional investors. Investments in financial instruments such as derivatives or transferable securities with underlying virtual assets, are to be considered as indirect investments in virtual assets. Without prejudice to Q3 A below, should such an AIF be managed by a Luxembourg-authorised AIFM, the latter must obtain an authorisation extension from the CSSF for this new investment strategy.
Virtual assets present specificities such as their volatility, liquidity and technological risk which could significantly affect the risk profile of the investment vehicle. The CSSF draws attention to the integration phase of virtual assets in the investment policy and reiterates the importance of having adequate internal control functions with their key role in the approval of new products/investment strategies.
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> Q3 A. Is this “Other-Other Fund-Virtual assets” license also required in case of management of AIFs investing in target funds with underlying virtual assets?
Published on: 06/04/2023
No application for the “Other-Other Fund-Virtual assets” licence is required for a Luxembourg IFM managing an AIF investing in virtual assets through one or several target funds (“TF”). When the AIF invests more than 20% of its NAV in one or several TFs, an IFM authorisation for the “fund of funds” strategy is required.
However, considering the risks related to investing in virtual assets, the CSSF requires that in relation to each TF with virtual assets as the main underlying exposure, the IFM undertakes an assessment of the ability of the TF’s manager to identify and manage the risks pertaining to investments in virtual assets. The assessment should include the operational risks arising from the activities of the parties which intervene in the administration, notably the registrar and transfer function, and custody of the virtual assets. The IFM should be able to provide the CSSF with the results of its assessment on demand.
The CSSF specifies that it is the responsibility of the relevant IFM to determine if a TF has virtual assets as main exposure.
Without prejudice to the above, please note that an investment in virtual assets through one or several TF constitutes an indirect investment in virtual assets, subject to all other conditions of the present FAQ.